Recommendation: Buy
CMP = Rs 60
Price target = Rs 73
Key points:
· Indo Rama Synthetics Ltd (IRSL), the country's largest dedicated polyester manufacturer, is well placed to capitalise on the upturn in the polyester sector due to its timely capacity expansions. Benign raw material scenario and reduction in power costs would further catalyse margins and profitability. We initiate coverage on the company with an OUTPERFORMER rating.
· Polyester sector headed for good times Polyester is becoming the preferred fibre the world over. In
· Timely expansion to help increase market share IRSL has doubled its capacity from 300,000 tpa to 600,000 tpa. The expanded capacity would enable it capture higher market share across various product categories.
· Favourable raw material scenario Prices of key inputs like purified terephthalic acid (PTA) and mono ethylene glycol (MEG) have stabilized due to new capacities. This move is expected to ease the pressure on raw material costs.
· Lower power costs to expand margin IRSL is merging a group company, Indo Rama Petrochemicals Ltd (IRPL), with itself. The merger will enable it to access power at substantially lower rates and reduce its power costs by Rs 26.43 crore in FY09E, thereby improving EBIDTA margins in FY09E.
· I would recommend Buy call on this scrip with a time frame of 12 months.
